China’s solar sector sees sunrise with sunset

PuJun

BEIJING (Caixin Online) — Ten of the 11 Chinese solar power companies listed on U.S. stock markets posted net losses for the third quarter, and the global industry is roiling over unfair trade allegations leveled by Americans against Chinese, and Chinese against Americans.

Some market analysts are cheering the integration. “The industry needs large-scale consolidation to let well-performing companies grow bigger and stronger,” said An Xin, a partner at private equity fund firm Boxin Capital. “I think it’s just a matter of timing.”

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Cao Yinping, manager of energy consulting at consultancy Frost & Sullivan in Shanghai says the industry is temporarily in flux but still has great potential for the future. Business is getting better as photovoltaic (PV) innovation continues, he said, and companies that take advantage of technological progress, control costs and follow sound management practices still merit investment.

It’s true that competition has pushed down prices for key solar products such as modules, which now cost “only $1 per watt... a previously unthinkable price,” Cao said.

Research agency Energy Trend said solar modules Nov. 23 sold for $0.924 per watt on the spot markets in East Asia, down more than 40% from the mid-March level.

Over the same period, the spot price for silicon wafers installed in solar panels declined nearly 70% to $1.183 per chip.

And ongoing expansions by some big solar concerns have led many investors to “fear excess capacity,” Cao said.

But the current shakeup eventually could lead to a much healthier solar power sector in China, he said. “After a batch of production capacity dies off, there could be a bull market.”

Undeniable risk

A recent report by the state investment bank China International Capital Corp. (CICC) warned of credit risks in the domestic solar industry, and pointed to recent fund-raising efforts as evidence.

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“This year, there are significantly more companies involved in issuing solar industry bonds,” said the CICC report, “which to some extent reflects the liquidity pressure the industry is currently facing.”

Meanwhile, a China Construction Bank branch president told Caixin he hasn’t seen any solar companies default on loans but is well aware of major losses in the industry.

CICC’s report noted that the Chinese maker of silicon wafers LDK Solar, for example, recently issued 400 million yuan ($62.9) worth of one-year bonds. It’s now considered among the domestic solar companies most at risk of default, the report said.

There remains a possibility that banks will “reduce lending to PV companies at a time of difficulty for the whole industry,” CICC said. “Without bank support, the company’s (LDK) cash holdings can only cover 59% of its short-term debt. It will face huge capital turnover pressure.”

Officials at New York-listed LDK
LDK
are not throwing in the towel. Yao Feng, the company’s director of public relations and sales, said solar companies can indeed survive the next few months via “quick sales and less spending. And cash is king.”

But LDK took a third-quarter charge on more than $40 million in excess inventory. The company blamed weak market demand for its bloated inventories.

Investors have caught a cold as well. Zhong Xiaolin, a partner at the private equity firm Jiangnan Capital, said for now “caution is still necessary.”

Solar promoters note the sector continues to top wind power in its ability to attract renewable energy investors, particularly since the actual cost of generating electricity from the sun has declined.

“Six years ago, the on-grid price for solar power (in China) was around 6 yuan per watt,” said Ye Dong, a partner at the securities firm Tsing Capital. “Now it is at about 1 yuan. Investment opportunities still exist.”

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